Tech News & Commentary

Microsoft investors cheer bigger-than-forecast job cuts

A flurry of pink slips put Microsoft (NASDAQ:MSFT) in the green on Wall Street Thursday as investors signaled their approval of the software giant's record number of job cuts.

Microsoft CEO Satya Nadella said the company will cut as many as 18,000 jobs this year as it looks to digest its acquisition of Nokia's (NYSE:NOK) mobile phone unit and make the company leaner overall. It was Microsoft's biggest employee reduction ever, topping the 5,800 jobs Microsoft cut in 2009. The 2009 cuts represented about 5% of the workforce at the time. This year's cuts amount to 14% of the company's 127,000 workers as of June 5.

Microsoft rose as much as 3.6% to 45.70, its highest level since the dot-com collapse of March 2000, in the stock market today. But in early afternoon trading Thursday, Microsoft had retreated to just below 45, a gain of 1.9%.

Of the total job cuts, about 12,500 professional and factory positions will be eliminated through synergies and strategic alignment of the Nokia handset business acquired by Microsoft on April 25. That represents 69% of the job cuts.

Microsoft expects to incur pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters, including $750 million to $800 million for severance and related benefit costs, and $350 million to $800 million of asset-related charges, according to the company's press release.

In a memo to employees, Nadella said the job cuts were a "difficult step" to reshaping Microsoft around its new mission as a "productivity and platform company."

The restructuring will help make Microsoft more agile by removing layers of management and modernizing its engineering processes, Nadella said.

The job cuts were steeper than expected, Sterne Agee analyst Robert Breza said in a research note Thursday.

A 10% workforce cut was recently speculated, he said: "Most investors have anticipated a workforce reduction; however, the magnitude and speed of the reduction should be well received by the Street. Cost savings will be substantial, increasing EPS in FY15 by approximately 30 cents."

FBR Capital Markets analyst Daniel Ives says Microsoft's job cuts were double what Wall Street was expecting. He added that Nadella is trying to clean up the mess left by his predecessor, Steve Ballmer: "Under the Ballmer era, there were many layers of management and a plethora of expensive initiatives being funded" that hurt the company's strategic and financial position.

Jack Gold, an analyst with J. Gold Associates, says Microsoft will spin off or sell its mobile phone business within 18 months. Microsoft is making the same mistake that Google (NASDAQ:GOOGL) did when it bought Motorola, which it ultimately sold to Lenovo, he said in a note Thursday.

A flurry of pink slips put Microsoft (NASDAQ:MSFT) in the green on Wall Street Thursday as investors signaled their approval of the software giant's record number of job cuts.

Microsoft CEO Satya Nadella said the company will cut as many as 18,000 jobs this year as it looks to digest its acquisition of Nokia's (NYSE:NOK) mobile phone unit and make the company leaner overall. It was Microsoft's biggest employee reduction ever, topping the 5,800 jobs Microsoft cut in 2009. The 2009 cuts represented about 5% of the workforce at the time. This year's cuts amount to 14% of the company's 127,000 workers as of June 5.

Microsoft rose as much as 3.6% to 45.70, its highest level since the dot-com collapse of March 2000, in the stock market today. But in early afternoon trading Thursday, Microsoft had retreated to just below 45, a gain of 1.9%.

Of the total job cuts, about 12,500 professional and factory positions will be eliminated through synergies and strategic alignment of the Nokia handset business acquired by Microsoft on April 25. That represents 69% of the job cuts.

Microsoft expects to incur pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters, including $750 million to $800 million for severance and related benefit costs, and $350 million to $800 million of asset-related charges, according to the company's press release.

In a memo to employees, Nadella said the job cuts were a "difficult step" to reshaping Microsoft around its new mission as a "productivity and platform company."

The restructuring will help make Microsoft more agile by removing layers of management and modernizing its engineering processes, Nadella said.

The job cuts were steeper than expected, Sterne Agee analyst Robert Breza said in a research note Thursday.

A 10% workforce cut was recently speculated, he said: "Most investors have anticipated a workforce reduction; however, the magnitude and speed of the reduction should be well received by the Street. Cost savings will be substantial, increasing EPS in FY15 by approximately 30 cents."

FBR Capital Markets analyst Daniel Ives says Microsoft's job cuts were double what Wall Street was expecting. He added that Nadella is trying to clean up the mess left by his predecessor, Steve Ballmer: "Under the Ballmer era, there were many layers of management and a plethora of expensive initiatives being funded" that hurt the company's strategic and financial position.

Jack Gold, an analyst with J. Gold Associates, says Microsoft will spin off or sell its mobile phone business within 18 months. Microsoft is making the same mistake that Google (NASDAQ:GOOGL) did when it bought Motorola, which it ultimately sold to Lenovo, he said in a note Thursday.

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